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Dec

2014

Goldman Sachs Found Liable for Retaliation Against Military Personnel

From the Desk of Jim Eccleston at Eccleston Law Offices:

A panel of securities industry arbitrators awarded two military personnel $7.6 million for wrongful discharge and for violations of USERRA, the federal law that protects military personnel from workplace harassment and retaliation.

The two men worked for Goldman Sachs for nine years until they were fined in 2007. Although the two men quickly found jobs at UBS, Goldman forfeited all of their deferred compensation because they did not give 60 days’ notice before starting work elsewhere. In addition, while the two men were working at Goldman Sachs, the company restructured its compensation plan and began withholding a portion of financial advisors’ commissions by converting them to restricted stock units that would pay out over time.

The two men currently are top producers in the Los Angeles office of UBS and are among the company’s top 2 percent of financial advisors nationwide.

The attorneys of Eccleston Law Offices represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.

Dec

2014

Former Morgan Stanley Advisor Wins $150K for Emotional Distress

From the Desk of Jim Eccleston at Eccleston Law Offices:

A former Morgan Stanley advisor won $150,000 in damages for the manner in which his employment was terminated in a FINRA arbitration.

According to the FINRA arbitration awards, Morgan Stanley was liable for “causing humiliation, emotional distress and loss of book of business.”

The advisor was employed at Morgan Stanley in Palm Beach, Fla., from 2006 until 2013 when the firm discharged him, accusing him of wrongful solicitation and handling of a client account.

In arbitration, the advisor sought damages for wrongful termination, slander and disparagement to his business reputation and breach of implied contract. The panel ordered Morgan to pay $150,000 for terminating the advisor’s employment in a “rush to judgment”, which caused the advisor’s unnecessary harm.

Dec

2014

SEC May Fine Advisors for Not Deleting Misleading Tweets

From the Desk of Jim Eccleston at Eccleston Law Offices:

According to the SEC, financial advisors could face enforcement actions for not deleting misleading social media posts.

Financial services firms need to consider the reputation of the site and who the users are, monitor charges on the site, and have clear policies as to who can comment and what can be said on the site.

The SEC has stated that it will be reasonable in judging how quickly a firm needs to remove a deceptive tweet or response.

The SEC also remarked that its investment management division has been fielding many inquiries from financial advisors as to whether LinkedIn endorsements on their company and employee pages are allowed.

Dec

2014

Citigroup Fined for Compliance Issue

From the Desk of Jim Eccleston at Eccleston Law Offices:

FINRA fined Citigroup $15 million for failing to supervise research analysts and their handling of material non-public information.

According to FINRA, Citigroup didn’t adequately protect against “potential selective dissemination of non-public research to clients and sales and trading staff” from January 2005 to February 2014.

From 2011 to 2013, Citigroup didn’t prohibit analysts from helping companies prepare for so-called road show presentations, and in 2011 an analyst helped two firms prepare such materials. In addition, Citigroup analysts also provided stock picks at idea dinners hosted by the bank that in some cases differed from their published research.

Citigroup has issued roughly 100 warnings about analyst communications with clients and sales and trading staff when it found violations. But it took too long to discipline staff.

Nov

2014

Imagination – and Legal Counsel – Helps Advisors Move to A New Firm

From the Desk of Jim Eccleston at Eccleston Law Offices:

A recent InvestmentNews article discusses why financial advisers, who are planning to move to a new firm, should adopt a creative visualization to make it happen. Generally, there are four stages.

First, advisors should review a printout of their clients ranked either by gross commissions or by assets under management and then consider, “Do they like you?”, “Are you in regular communication with them?”, and “Do they think you are highly replaceable?” Normally, at least 80% of desired clients can be transported successfully with advisors to new firm. This technique also can help advisors identify problems in client relationships and become more aware of issues with non-transportable products like stand-alone hedge funds and private equity.

Second, advisors, who know that their client relationships are solid, next can imagine themselves telling clients that they’ve moved to a new firm. Go down your client list slowly and visualize different responses of clients as they respond to your decision to change firms.

Third, by using affirmations (a declaration of good things that we can realistically expect to occur) like “my clients value my advice and will surely join me at my new firm”, “I may lose some clients in a move but the ones who really matter to me are coming”, advisors effectively can improve their confidence.

The fourth step recommended is more concrete: prepare a letter of resignation for the branch manager. Here, we take issue with the article because it fails to mention that securing competent legal counsel is a must. Retaining counsel truly is a no-brainer: reps making a career decision and moving tens if not hundreds of millions of dollars of client assets need competent securities law counsel to protect their investors.

In conclusion, visualized techniques – and legal counsel – can help advisors be more prepared, more confident and more protected in their moves.

Nov

2014

Independent Brokerage Firms Put Schorsch in Penalty Box

From the Desk of Jim Eccleston at Eccleston Law Offices:

According to numerous reports, independent broker dealers are suspending sales of products from the sprawling Schorsch following news of a $23 million fraud at American Realty Capital Properties (ARCP).

The product suspension applies to not only the ARCP REIT but also to the offerings from the Shorsch parent company.

The executive-search consultant Mark Elzweig said in an interview that” the scandal has tarnished the entire Schorsch brand. In other words, although these are two separate corporate entities, their brands are linked in terms of their public image.”

“This is unfortunate,” Elzweig said, “considering that ARCP had built up a very strong brand and strong relationships with advisors who valued what the company had brought to the non-traded REIT niche”.

Nov

2014

New Transition Compliance Package for Financial Advisers

Eccleston Law Offices is excited to announce our NEW fixed fee Transition Compliance Package for Financial Advisers!

For one fixed fee, Chicago-based Eccleston Law Offices will offer reps several services – including planning in advance to successful transition, being on call for any difficulties that may arise, determining rights and responsibilities – whether the adviser is governed by the protocol for broker recruiting or not.

Nov

2014

HighTower in the News for Defections

From the Desk of Jim Eccleston at Eccleston Law Offices:

HighTower is taking hits in the form of high profile advisor and team defections. Original partners received special deals, but recent press reports state they have nothing to show for as a result. It is likely that a few advisors may be “looking around” for better opportunities. A major problem reportedly is the way the firm managed its financing structure and cash flow.

Press reports suggest that the list of concerns goes on. Most important is profitability. The reason is that the equity structure is not compelling enough to retain the top advisor management, and many may be planning to leave the firm. News stories report that many observers predict a major collapse or a sell off within a year. We will keep readers posted.

Oct

2014

Advisers Face Challenges to Make Acquisitions Work

From the Desk of Jim Eccleston at Eccleston Law Offices:

According to a recent survey conducted by Aite Group and sponsored by NFP Advisor Services, most advisors are facing challenges from different aspects when they look to pick up a book of business to build their own practice.

Client retention was the most difficult challenge. Even in the most successful acquisitions, which the survey called “alpha acquisitions”, the average retention rate of clients was 76%. Around one third of respondents said they kept only 44% of the clients from the acquired practice.

Another challenge was finding the right match in terms of geography, product lineup and age. More than half of all successful acquisitions happened between two people who were personal contacts before the deal. Only 10% were brokered by an external consulting firm. Moreover, many of the most successful acquirers took three years or more to find their partner.

Another stumbling block is determining what to pay for the practice presented. The 25% of acquirers who reported being most satisfied with the deal also reported paying more. According to the survey, factors for pricing were assets under management, client service model, revenue mix, business longevity and cash flow from operations. More than half the alpha acquisitions were financed entirely by the acquirer without loans. In 73% of the cases, advisers who were not satisfied by their purchase took out personal loans.

Once a deal was finalized, the majority of advisers in the successful acquisitions had transitioned the business within a year, however, while it had taken three years or more for the less successful acquisitions. In total, 36% of the alpha acquisitions reported an increase of more than 10% in revenue for the acquired practice. While only 3% of non-alpha acquisitions reported the same.

Sep

2014

Brokers Under Pressure To Sell In-House Products

From the Desk of Jim Eccleston at Eccleston Law Offices:

Two former private bankers at Deutsche Bank filed a suit recently, alleging that their bank pushed them to steer their clients’ money into the bank’s own investment products even though those products were against the clients’ interests.

According to a survey, the pressure to favor in-house products is “very common” at banks and securities firms, especially when it came to higher-fee “alternative investments” like hedge and private equity funds.

Over the last two decades, some brokerage firms have moved away from business models favoring their own firms’ funds. However, advisers still routinely feel pressure to bolster their commission revenue, giving them an incentive to steer clients into higher-fee products to “pump up their production.”

Morgan Stanley, the nation’s largest retail force with 16,316 brokers, has less than 5 percent of its clients’ managed-account assets in Morgan Stanley-sponsored funds. At the Merrill Lynch unit of Bank of America, its 13,845 brokers also have less than 5 percent of its $552 billion in managed client accounts in Merrill’s own funds.

However, percentages are higher at some other big-name firms. Private bankers at Goldman Sachs, for example, typically put a majority of clients’ cash and fixed-income investments into Goldman funds, while steering a majority of their higher-risk assets such as actively managed stocks, hedge funds and private equity to external managers.

Likewise, Deutsche Bank’s roughly 335 brokers in the United States invest about 34 percent of their client account assets in the bank’s own investment products. JPMorgan Chase reduced the average percentage of its own funds in the accounts of Chase Strategic Portfolio, to about 31 percent from about 42 percent, according to the program’s current brochure.